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The Export-Import Bank of India is one of the non-commercial banks in the country that directly or indirectly has a huge impact on the small and medium-sized companies (SME). The apex bank’s role is not just to promote India’s contribution to international trade but it also acts as a helping hand to exporters and importers.

Hence people like Debasish Mallick, the Deputy Managing Director of Exim Bank, do not just understand the importance of financial sector but can also feel the pain of exim traders, who are generally from the SME category. During a recent conversation with Entrepreneur India, Mallick shared his outlook on the fintech segment and talked about the opportunities that technology comonaies have in export-import business.

Limited Disruption

From a banker’s point of view, the financial technology companies, better known as fintechs, are indeed disrupting the financial sector. “But unfortunately, the development is limited to the lending space or the payment space. Even in lending space, it is more focused on P2P lending and crowdfunding,” he said.

So how can fintechs cater to the export-import industry? And Mallick’s prompt reply was, "through factoring".

“If entrepreneurs can manage to combine this financing option with technology and internet, a lot can happen,” he added.

Wiggle Room

Factoring, as a concept and as a lending instrument, has been in vogue in the sector for a long time, but the market hasn’t picked up much. Why? Well, according to industry experts, majority of exporters are not even aware of this instrument. So, what exactly is factoring?

In simple words, it is a lending option where a seller avails loans on his receivables. To help us understand the instrument, Mallick gave a simple example: “Imagine you are a seller of machinery and Tata Steel has bought your equipment and promised you to clear your bills within three months.

In the above situation, your money is stuck with the buyer and hence you are not in a situation to roll back the capital in the business and you are likely to fall short on liquidity,” he pointed out.

In such a situation, a factoring company comes to your rescue, where it can discount your bill and lend you capital for your business.

“You can consider the discount rate as interest rate, which is the difference between the bill and the amount you borrowed. This is how a factor, who is here the lender, earns the profit” the banker explained.

Once this transaction goes international, risk increases and instruments like export factoring can help you, he added. The period of factor debts is generally 90 to 120 days.

According to Mallick, fintechs can facilitate factoring by releasing small and medium-ticket sized loans within two-three working days through Aadhaar and e-kyc or e-verfication processes. “It won’t be difficult for a company to validate a sale bills or purchase bills to facilitate factoring,” he added.